Wednesday, August 27, 2014

NASDAQ poised to take a breather... or not

This nice NASDAQ rally really is starting to look "long in tooth" and in need of a little breather and possibly some consolidation, but... that is not to say that this is what will actually happen. We simply don't know what fraction of the bulls are now tapped out versus standing by with more capital to deploy. But we do know that the bears are desperately ready to clobber the bull the moment that buying pressure dries up. But the flip side of that flip side is that any half-hearted move by the bears can quickly evaporate as well and turn into another short squeeze that kicks off another rally higher.
 
NASDAQ futures are up very modestly, so we should see a very modest pop at the open, but the big question remains whether people pile on to build on the rally or turn around and sell into the rally. Both prospects are equally likely.
 
Once again, all of this is happening in the context of the slow trading of the summer doldrums. Labor Day is next Monday, so we are just three trading sessions away from the heavy hitters getting back from their summer breaks. It may take them a week or so to get their act together, but by the middle of September we will have a much better handle on whether this "nice" rally has both staying power and "legs" for a further advance, especially for heading into October when the Fed officially ends its QE asset purchase program.
 
As long as the real economy continues to incrementally improve, which it has every prospect of doing, the stock market will continue to be well-supported, albeit with potholes, mini-corrections, and even outright corrections along the way. Call it "upwards, but bumpy."
 
-- Jack Krupansky

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